SE Asian currencies up amid cautious optimism

SE Asian currencies up amid cautious optimism

SINGAPORE (Dow Jones): For the first time in months, some
market players were daring to take a bullish view on Southeast
Asian currencies, as late yesterday regional foreign exchange
markets ended a week of choppy trading significantly higher
against the U.S. dollar.

A happy confluence of forces, including a stronger yen, lower
Thai interest rates and the International Monetary Fund's
approval of extra assistance funding for Indonesia all boosted
sentiment toward the region's currencies, which are set to
appreciate further in the coming week, according to traders and
analysts.

"Obviously markets will continue to take their cue from the
yen, but in a way that's unfortunate because internal economic
dynamics in Southeast Asia are changing," said Vincent Low,
currency and fixed income strategist at Merrill Lynch in
Singapore.

As evidence that the foreign exchange market may be undergoing
a change of heart, traders pointed to the baht, which rose
against the U.S. dollar in Asian trading despite tumbling
interest rates in both the onshore and offshore markets.

Even as recently as a few weeks ago speculative players would
have taken advantage of any softening in offshore interest rates
to borrow baht in order to sell the currency short. But not any
more, say traders.

Far from spinning into a free fall, however, the baht actually
edged higher on the day. Late in Asia the U.S. dollar was quoted
at 40.5650 baht, down from 40.6150 baht the day before.

"Some people are bearish on the baht because the Bank of
Thailand has been injecting liquidity into the system to bring
interest rates down, but the simple truth is that customer
interest to short the baht has dried up and without customer
interest, there is no driving force to push the currency lower,"
said a baht trader at a U.S. bank in Singapore.

Sentiment has also improved toward the Philippines, which,
like Thailand, is believed to have reached the bottom of its
economic downturn. On the Philippine Dealing System, the U.S.
dollar ended Friday's session at 41.49 pesos, down from 41.65
pesos at the previous close.

The market is looking more kindly on the rupiah, too, after
the IMF on Thursday approved an additional standby credit
facility for Indonesia worth an extra $1.3 billion.

"Once the IMF dollars start flowing, Bank Indonesia will be
able to replenish its reserves and take some of the pressure off
the local banking system," said the head of regional currency
trading at a Japanese bank in Singapore.

Lacking credit lines to offshore banks, Indonesian banks in
search of U.S. dollar funding had been forced to buy the U.S.
currency in the spot market. Now with the promise of funds from
Bank Indonesia, the local banks have turned dollar sellers.

"The rupiah will be back at 10,000 (rupiah to the dollar) by
the end of August," asserted the Japanese bank trading chief.

The run-up in the rupiah also served to boost the ringgit,
and, briefly, the Singapore dollar.

The market remains wary of more corporate failures in
Malaysia, and little good news is expected to emerge from Finance
Minister Anwar Ibrahim's current visit to the U.S.

Although the ringgit will continue to benefit from any further
strengthening in the yen or the rupiah, most see the currency
weakening over the longer term.

Late yesterday the U.S. dollar was quoted at 4.0925 ringgit,
down from 4.1095 ringgit the day before.

The Singapore dollar, too, found some initial support from the
market's general bullishness on regional currencies. The currency
dropped back sharply in late trading yesterday, however, on what
traders attributed to position squaring, although they added that
the Monetary Authority of Singapore had earlier been buying the
U.S. dollar to check the local currency's rise.

Late yesterday the U.S. dollar was quoted at S$1.6925, up from
S$1.6860 towards the close of Asian trading on Thursday.

In North Asia, the new Taiwan dollar finished a little higher,
with the U.S. dollar closing at NT$34.323, compared with
NT$34.362 on Thursday.

With the Seoul market closed for a holiday, no trading took
place in the won. But after a week in which the South Korean
currency rose by 2.5 percent, buoyed up by a ballooning current
account surplus, many analysts expect the won to continue to
rise, with the U.S. dollar dropping to 1,250 won), compared with
1,284.50 won at Thursday's close.